Do you own a boring business?

Do you own a boring business?

Matt Gilbert

February 26, 2021

Do you own a boring business? Is it in a sector that never makes headlines?  Is the business really only visible when someone has a need? Are the employees average people who could easily be my neighbors?

Not long ago, I had an investor tell me “boring is beautiful," and I knew exactly what she meant. She meant that everyday employers, local service companies, and typical family-owned and privately-held organizations - who make up the fabric of every community in our great nation - are the types of companies she wants to buy and in which she wants to invest. In fact, the most boring business led by an owner who is not quite ready to retire might just be the holy grail for many buyers.  Let me explain…

The ideal scenario for many buyers in 2021 is to find an “unexciting” business that is essential to some sector of the economy and whose owner would like to remain at the helm for 2-4 more years before retiring or slowing down. Right now, businesses like that are trading at the upper end of fair market value range. Offer structures on a deal valued at $10M might look something like this:

Buyers typically offer to buy 65-80% of a business. We will use 75% for easy math:

  • $7.5M is the deal value for 75% of the company.
  • The selling owner would keep 25% of the equity and become the buyer’s partner. (This 25% is worth $2.5M today.)

Other Details:

  • Cash at Closing = 70-80% of the buyer’s offer. Again, we will use 75% for easy math. The owner would get $5,625,000 cash (before taxes and professional fees) the day the sale is closed.
  • Seller note = 10% or $750K. (It could be for something tangible like real estate, equipment, inventory, etc.) This note is interest bearing.
  • Earn-out = 15% or $1,125,000. An earn-out is a predefined, structured agreement and usually lasts 1-5 years, depending on many factors. It will most likely be tied to and triggered off future sales or future EBITDA, but it can apply to anything where the buyer perceives risk - like keeping the top 3 customers or ensuring key personnel stay for a period of time.

This scenario typically includes keeping the owner onboard and employed as the President and a Board Member, allowing him or her to continue running the business for the investors. (As a lower middle market business owner, I bet you never even thought you would have or need a Board of Directors!) Specifically, there will be an employment agreement and responsibility to the Board. The selling owner is now an investor, too!

Obviously, negotiations and offers can morph this basic scenario into a myriad of different forms to best meet the owner’s agenda, but this is basically what we call a “recap” or “recapitalization” in M&A parlance. It has quickly become the favorite way for many business owners - as well as buyers - to transact. The owner/seller gets to “take some chips off the table” and diversify, while the buyer gets a partner who knows the business inside and out and can help them be successful. In short, these parties team up to take the business to the next level using the seller’s know how and the buyer’s capital, connections, and guidance.

I started this blog by talking about “boring” businesses. By this I mean businesses that consistently provide a great service or businesses that solve meaningful problems or companies who manufacture necessary components. Businesses like these are painstakingly built over decades, often using a currency of blood, sweat, and tears by shareholders who “lived the business.” These companies usually have reliability, integrity, relationships, processes, and craftsmanship that are held together by a culture of accountability to the owners’ standards. They are businesses that should continue to endure the test of time in an ever-changing world.

Boring businesses are repetitive by nature. They take their “one thing” and they do it better than anyone else. Over time they develop systems to generate consistent and predictable profit. Being flashy, taking short cuts, and having PR departments isn’t their style. They typically exhibit the style: “I’ll tell you what we’re going to do. Then we’re going to do it. Then your problem will be solved, and we’ll both be better off for it.” They’re also the kind of businesses where a handshake still means something and where a contract or agreement is to satisfy the insurance company or the legal aspects, not to ensure quality.

If you own a boring business in a boring industry and you’d like your last few years at the helm to be meaningful, you can put your decades of experience to work alongside an investor’s checkbook and really accomplish something magical on your way out. If this describes you, then a “recap” may be just what the doctor ordered. And when you are truly ready to hang up your spurs, you will have trained your succeeding shareholders, put in place your next level management team, and increased the value and stature of your business. In many cases, these maneuvers will put you in position to sell your remaining 25% ownership stake for more than you sold your original 75% for just a few years earlier!

Most business owners do not understand how these things work until we start planning their personal exit, and I have certainly simplified it in this blog. However, I have learned that this type of staged exit is very appealing to many owners. If you are among those who can envision this scenario, you have held out long enough. Politics, COVID, cheap debt, a shrinking world, and the internet age are all stars that have aligned to illuminate your path. Do not wait too long, or you may miss a golden opportunity.


If any of this resonates with you, I would encourage you to take our Sellability Assessment and talk with us to see if your business makes the cut as one who can still command a great exit in this M&A environment. We will be in touch quickly to discuss the results. Click here to take the assessment.


About GaP Business Advisors

Gilbert & Pardue Business Advisors (GaP) is a Houston-based business advisory firm serving lower middle market and middle market business owners from coast to coast through representation for Mergers & Acquisitions (M&A) and through business value-growth services such as Fractional CFO, Advisory Board, Executive Coaching, and Consulting.

Matt Gilbert and Bret Pardue established GaP to provide owners of lower middle market and middle market businesses – those businesses generally enjoying annual revenue of $5-$75 million – with the quality of M&A representation and value-enhancement services previously only available to upper middle and large businesses. GaP brings highly experienced executives, sophisticated financial and marketing products, proven-effective processes, and fully integrated expertise to every engagement. No other M&A firm serving the lower middle and middle markets provides the quality of representation and transactional expertise that we do.

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